Tax+Business Alert
May 9, 2023
3 Things to Know After Filing Your Tax Return
Partner Video Feature: Judy Haven and Holly Pett
Bolster Wealth Management With Trusts
Take Advantage of the Rehabilitation Tax Credit When Altering or Adding to Business Space
4 Ways Corporate Business Owners Can Help Ensure Their Compensation Is "Reasonable"
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3 Things to Know After Filing Your Tax Return |
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Most people feel a sense of relief after filing their tax returns each year. But even if you’ve successfully filed your 2022 return with the IRS, there may still be some issues to bear in mind. Here are three important things to know.
1. You can check on your refund. The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Get Your Refund Status.” You’ll need your Social Security number, filing status and the exact refund amount.
2. You can file an amended return if you forgot to report something. In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later. So, if you file your 2022 tax return on April 18, 2023 (the due date for 2022 returns), you’d typically have until April 18, 2026, to file an amended return.
However, there are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.
3. You can throw out some tax records. You should keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. The statute of limitations is generally three years after you file your return.
That means you can probably dispose of most tax-related records for the 2019 tax year and earlier years. (If you filed an extension for your 2019 return, hold on to your records until at least three years from when you filed the extended return.) However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.
You’ll need to hang on to certain tax-related records longer. For example, keep actual tax returns indefinitely so you can prove to the IRS that you filed legitimately. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)
Keep records associated with a retirement account until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset so you can prove your tax basis, plus at least three years after you sell it and report the sale on your tax return. (You may want to keep these records for six years if you want to be extra safe.)
Always Available
Contact us if you have further questions about your refund, filing an amended return or record retention. We’re here all year!
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Marcus Klemm
D 715.748.1352
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Judy Haven and Holly Pett
Get to know the partners in our Mequon, WI, office. In this video, Holly Pett, CPA, EA, and Judy Haven, CPA, share some helpful financial tips.
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Bolster Wealth Management With Trusts |
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Trusts can be a useful tool for affluent individuals and families when it comes to wealth management, protection and growth. But there are a wide variety to choose from, so it’s important to clearly understand the benefits and limits of a trust before choosing any one type.
What’s a Trust?
A trust is a legal document (and the entity created by that document) that dictates how an individual’s assets will be managed for another person’s (or other people’s) benefit(s). There are usually three parties to a trust: the grantor who creates the trust, the beneficiary (or beneficiaries) who’ll benefit from the trust, and the trustee(s) who’ll manage the assets according to the trust’s terms and in the beneficiary’s best interests.
All trusts fall into one of two broad categories: living trusts and testamentary trusts. A living trust is set up during an individual’s lifetime to transfer property to the trust. Testamentary trusts are established as part of an individual’s will and take effect after he or she dies.
Living trusts can be further categorized as revocable and irrevocable. With a revocable trust, the grantor retains control of the trust’s assets and can revoke or change its terms at any time. With an irrevocable trust, the grantor no longer owns the assets and, thus, can’t make changes to the trust without the beneficiary’s consent.
How Can One Protect You?
Individuals looking to manage their wealth in a patient and prudent manner can achieve various financial and estate planning goals from a trust, depending on its type. For example, many affluent individuals, professionals and business owners use a Delaware statutory trust to protect their assets from a loss resulting from a legal judgment, such as malpractice or personal injury liability. A Delaware trust also can be used instead of a prenuptial agreement by a spouse to preserve his or her assets in case of a divorce.
When establishing a Delaware trust, you transfer the assets you want to protect to an irrevocable trust. These assets can include cash, business ownership interests, real estate and securities like stocks and bonds. In general, the assets will be protected from future creditors. Although you must give up some control of the assets when you place them in the trust, you can retain some powers, such as the right to direct the investment of trust assets and the right to receive income and principal distributions from the trust.
Who Can Help?
There are many other trust types to consider. The rules for establishing and maintaining a trust can be complex, so please contact our firm for guidance.
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Judy Haven, CPA
D 262.243.9610
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Tax Tip Tuesday - Video Short |
3 Reasons Why Your Refund Is Not As Strong As Last Year
This week, Kyle Hundt, EA breaks down 3 reasons why your refund is not as strong as last year.
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Take Advantage of the Rehabilitation Tax Credit When Altering or Adding to Business Space |
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If your business occupies substantial space and needs to increase or move from that space in the future, you should keep the rehabilitation tax credit in mind. This is especially true if you favor historic buildings.
The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure. A qualified rehabilitated building is a depreciable building that has been placed in service before the beginning of the rehabilitation and is used, after rehabilitation, in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated, which generally requires that the QREs for the rehabilitation exceed the greater of $5,000 or the adjusted basis of the existing building.
A QRE is any amount chargeable to capital and incurred in connection with the rehabilitation (including reconstruction) of a qualified rehabilitated building. QREs must be for real property (but not land) and can’t include building enlargement or acquisition costs.
The 20% credit is allocated ratably to each year in the five-year period beginning in the tax year in which the qualified rehabilitated building is placed in service. Thus, the credit allowed in each year of the five-year period is 4% (20% divided by 5) of the QREs with respect to the building. The credit is allowed against both regular federal income tax and alternative minimum tax.
The Tax Cuts and Jobs Act, which was signed at the end of 2017, made some changes to the credit. Specifically, the law:
- Requires taxpayers to take the 20% credit ratably over five years instead of in the year they placed the building into service
- Eliminated the 10% rehabilitation credit for pre-1936 buildings
Contact us to discuss the technical aspects of the rehabilitation credit. There may also be other federal tax benefits available for the space you’re contemplating. For example, various tax benefits might be available depending on your preferences as to how a building’s energy needs will be met and where the building is located. In addition, there may be state or local tax and non-tax subsidies available.
Getting beyond these preliminary considerations, we can work with you and construction professionals to determine whether a specific available “old” building can be the subject of a rehabilitation that’s both tax-credit-compliant and practical to use. And, if you do find a building that you decide you’ll buy (or lease) and rehabilitate, we can help you monitor project costs and substantiate the compliance of the project with the requirements of the credit and any other tax benefits.
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Nicole Malueg, CPA
D 920.684.2523
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4 Ways Corporate Business Owners Can Help Ensure Their Compensation Is "Reasonable" |
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If you’re the owner of an incorporated business, you know there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason: A corporation can deduct the salaries and bonuses that it pays executives, but not dividend payments. Therefore, if funds are paid as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid out as compensation is only taxed once — to the employee who receives it.
However, there are limits to how much money you can take out of the corporation this way. Under tax law, compensation can be deducted only to the extent that it’s reasonable. Any unreasonable portion isn’t deductible and, if paid to a shareholder, may be taxed as if it were a dividend. Keep in mind that the IRS is generally more interested in unreasonable compensation payments made to someone “related” to a corporation, such as a shareholder-employee or a member of a shareholder’s family.
Steps to Help Protect Yourself
There’s no simple way to determine what’s reasonable. If the IRS audits your tax return, it will examine the amount that similar companies would pay for comparable services under similar circumstances. Factors that are taken into account include the employee’s duties and the amount of time spent on those duties, as well as the employee’s skills, expertise and compensation history. Other factors that may be reviewed are the complexities of the business and its gross and net income.
There are four steps you can take to make it more likely that the compensation you earn will be considered “reasonable,” and therefore deductible by your corporation:
- Keep compensation in line with what similar businesses are paying their executives (and keep whatever evidence you can get of what others are paying to support what you pay).
- In the minutes of your corporation’s board of directors’ meetings, contemporaneously document the reasons for compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was low, be sure that the minutes reflect this. (Ideally, the minutes for the earlier years should reflect that the compensation paid then was at a reduced rate.) Cite any executive compensation or industry studies that back up your compensation amounts.
- Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by the IRS.
- If the business is profitable, pay at least some dividends. This avoids giving the impression that the corporation is trying to pay out all of its profits as compensation.
You can avoid problems and challenges by planning ahead. Contact us if you have questions or concerns about your situation.
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Randy Juedes, CPA
D 715.748.1346
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At Hawkins Ash CPAs, we hire professionals looking to thrive in their careers and life. We ensure the support and development our professionals need to provide our clients with the best service possible. If you know someone who would fit one of these positions, please encourage them to apply. |
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More Resources from CPA-HQ |
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Retirement Saving Options for Your Small Business: Keep It Simple
If you’re a small business owner, you may be reluctant to set up a retirement plan because of the administrative burdens. Here are two options to consider that have far fewer requirements than traditional qualified retirement plans.
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The Tax Advantages of Hiring Your Child This Summer
Thinking about hiring your high-school or college-age child to work in your business? You could reap significant tax benefits.
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Is Your Withholding Adequate?
Many people are distressed to find they owe money when they file their federal tax returns. When that happens, taxpayers might want to change their withholding so that it doesn’t happen again the following year. Another reason to consider adjusting withholding is when a taxpayer gets a big refund, which essentially means the government got a tax-free loan of the taxpayer’s money.
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